Derivatives

Cardamom spices up

Gurumurthy K | Updated on January 19, 2018

PO18_Cardamom.jpg

Increase in export demand and drop in output from Guatemala may support prices



Cardamom has witnessed a robust start this year. The cardamom futures contract traded on the Multi Commodity Exchange (MCX) has surged over 5 per cent in the first two weeks of the New Year. From being one of the worst performers in 2015, cardamom has turned out to be the best performer so far this year among the actively traded domestic commodity futures contracts. It is currently trading around ₹805 per kg.

Increase in demand well ahead of the festival season with prices ruling well below average levels of last year, is said to be the key trigger. The MCX-Cardamom futures contract had plummeted 49 per cent from its high of ₹1,190 per kg in March to record a low of ₹602.6 per kg in December last year.

The sharp fall in prices was due to good rains, which resulted in forecasts of an increase in production to over 25,000 tonnes. However, it now looks like the excess supply in the domestic market would be well absorbed in the export market.

Guatemala, the world’s largest producer of cardamom, is expected to see a 15 per cent production drop this year due to dry weather conditions and draught

Given that India is the second largest producer of cardamom in the world, a pick-up in export demand could help cardamom prices move higher.

Medium-term view

MCX Cardamom futures contract was in a strong downtrend all through last year. The contract recorded a high of ₹1,190 per kg in March and plummeted to a low of ₹602 in December.

However, the contract has reversed sharply higher thereafter and has risen over 33 per cent from this low. The recent rally from the December low signals the reversal of the strong downtrend that was in place since March last year.

Also, the price action between November and December reflects the formation of a double-bottom reversal pattern suggesting that the downtrend since March last year could have ended.

In addition to this, the MCX Cardamom futures contract has been broadly range-bound between ₹550 and ₹1,200 for a very long time since 2013.

The strong recovery seen in the past month implies that the long-term sideways movement in the contract remains intact.

The major moving averages, 55-, 100- and 200-week remain flat, suggesting that the long-term sideways consolidation could continue.

All the above mentioned factors indicate that, within the long-term range bound movement, the MCX-Cardamom futures contract has begun a fresh leg of up-move. Strong support for this leg is around ₹650. There is no immediate danger of the contract falling in the near-term as long as it trades above this support. Resistance is at ₹900 — the 38.2 per cent Fibonacci retracement level. A strong break above this hurdle could take the contract higher to ₹1,000.

Further break above ₹1,000 will then open the doors for a rally to ₹1,100 or even ₹1,200 over the medium to long term.

The outlook will turn negative only if the contract falls below ₹650. Such a fall can take it back to ₹600 and ₹550 — the lower end of the long-term range thereafter.

Short-term view

The short-term trend is up. The contract is consolidating in the last two weeks after breaking above the 200-day moving average resistance at ₹796.

The 21-day moving average is on the verge of crossing over the 100-day moving average. This signals that the bullish momentum may continue.

The next key resistance is near ₹900, which is the 200-week moving average as well as the 38.2 per cent Fibonacci retracement level. This resistance is likely to be tested in the near term. Inability to break above this hurdle can trigger a corrective fall to ₹800 and ₹750.

On the other hand, a strong break above ₹900 will increase the bullish momentum and take the contract further higher to the next targets of ₹950 and ₹1,000 in the short term.

Published on January 17, 2016

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